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Friday, May 14, 2010

May 14 (Bloomberg) -- India, ranked below war-ravaged Ivory Coast for the quality of its infrastructure, is planning to set up a 500 billion rupee ($11 billion) debt fund to build ports, roads and bridges needed to drive economic growth.

“The modalities are being worked out,” Montek Singh Ahluwalia, a top government adviser said in a telephone interview from New Delhi. “The idea is to refinance lending institutions. We are talking to the World Bank and other multilateral agencies.”

India doubled its target for infrastructure spending to $1 trillion in the five years starting 2012 to narrow the gap with China, the world’s fastest growing major economy. The fund is the latest attempt by the government to raise capital from overseas after a $5 billion fund planned in 2007 with Citigroup Inc. and Blackstone Group LP was shelved.

The fund is a “good start but it won’t be enough,” said Prasanna Ananthasubramaniam, chief economist at ICICI Securities Primary Dealership Ltd. in Mumbai. “One fund cannot take all the risks of infrastructure projects.”

India spent 6.5 percent of its gross domestic product in 2009 on infrastructure, compared with about 11 percent by China, according to an Ernst & Young India report. Failure to lift investment may imperil Prime Minister Manmohan Singh’s target of boosting economic growth to 10 percent needed to pull 828 million people living on less than $2 per day out of poverty.

Needs $1 Trillion

Ahluwalia, deputy chairman of the nation’s Planning Commission, said in a report in March that India may need as much as $1 trillion in such investment between 2012 and 2017.

Global funds including 3i Group Plc have invested in India’s ports and power plants. Macquarie Group Ltd., Australia’s biggest investment bank, and State Bank of India, the nation’s largest lender said last year that they raised $1 billion to invest in the South Asian nation’s infrastructure.

Citigroup, based in New York, said in May 2008 it had raised $500 million to build ports, roads and utilities. The finance ministry in Feb 2007 announced the formation of the $5 billion infrastructure fund with Citigroup and Blackstone.

Finance Minister Pranab Mukherjee in February offered tax breaks to individuals and companies to encourage infrastructure investments. The country is ranked 89 out of 133 nations for its infrastructure, according to the World Economic Forum’s Global Competitiveness Index.

Per Capita Spending

India’s per capita spending on city development is $17 each year, just 15 percent of what China spends, according to a report released by McKinsey & Co. last month. India will have 68 cities with a population of more than one million people, 13 cities with more than four million people and 6 mega cities with populations of 10 million or more, at least two of which will be among the five largest cities in the world by 2030.

India produces about 10 percent less electricity than it needs. The roads, which account for 65 percent of India’s cargo, are plagued by single lanes and irregular surfaces, slowing trucks to an average speed of about 20 kilometers per hour, according to a 2009 study by Transport Corp. of India and the Indian Institute of Management, Calcutta.

The average time taken by ships to unload and load at Indian ports is almost 96 hours, about 10 times longer than in Hong Kong, the government said in its latest annual economic survey.